o AT&T; LTE 12:37 PM ezto.mheducation.com Principles of Financ Fall_ 2017 Homewo
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o AT&T; LTE 12:37 PM ezto.mheducation.com Principles of Financ Fall_ 2017 Homework 04-Ch 08 Question 2 fof 6.00 points The Faulk Corp. has a 5 percent coupon bond outstanding. The Gonas Company has a 11 percent bond outstanding. Both bonds have 19 years to maturity, make semiannual payments, and have a YTM of 8 percent. If interest rates suddenly rise by 2 percent, what is the percentage change in the price of these bonds? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Pencentage change in price of Faulk Percentage change in price of Gonas What if interest rates suddenly fall by 2 percent instead? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.) Percentage chango price of Faulk Percentage change in price of Gonas Hints References eBook & ResourcesExplanation / Answer
If interest rates suddenly rise by 2 %:
Price of Faulk Corp. Bonds : $ 578.30
% Change in Price = $ ( 578.30 - 709.50) / $ 578.30 * 100 = - 22.69 %
Price of Gonas Company Bonds : $ 1,084.33
% Change in Price = $ ( 1,084.33 - 1,290.53) / $ 1,290.53 * 100 = - 15.98%
If interest rates suddenly fall by 2 % :
Price of Faulf Corp. Bonds = $ 887.51
% change in price = $ ( 887.51 - 709.50) / $ 709.50 * 100 = 25.09 %
Price of Gonas Company Bonds = $ 1,562.29
% change in price = $ ( 1,562.29 - 1,290.53) / $ 1,290.53 * 100 = 21.06 %
Faulk Corp. Gonas Company Par Value $ 1,000 $ 1,000 Coupon Rate 5% 11 % Semiannual Coupon $ 25 $ 55 Periods to Maturity 38 38 Discount Rate 4 % 4 % Current Bond Price $ 709.50 $ 1,290.53Related Questions
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